China’s producer price growth returned to levels last seen eight years ago, while consumer inflation slid sharply thanks to the sudden arrival of the spring vegetable crop weeks ahead of schedule.
Data from China’s Statistics Bureau showed producer price index rose at an annual rate of 7.8% in February, above market estimates and well ahead of the 6.9% rise in January.
It was the six monthly rise in producer prices in a row after four and a half years of intense price deflation that only ended last September.
Month-on-month producer price growth 0.6%, down 0.2 percentage points from January, due weaker price rises for oil and gas extraction, coal extraction and coal washing.
Consumer price growth slowed sharply though rising just 0.8% (a two year low) in the month from a year ago against the 2.5% jump in January when prices were boosted by the usual demand from the Lunar New Year Holiday spending spree.
As the Lunar New Year fell in February a year ago, the CPI slowdown was a bit misleading. But it was still there with month on month figures showing a fall of 0.2%.
The statistics bureau said the slight month-on-month deflation was due up a fall in food prices – particularly vegetables, growth of which was benefiting from unusually warm temperatures across China in January – as well as a fall in travel costs after the holiday break – again a normal event.
It also attributed the year-on-year softening of inflation to higher pork and fresh vegetable prices in February 2016, thanks to cold weather in January of that year.
The Financial Times remarked that “The shift in seasonal average temperatures throughout China described by the bureau which facilitated early vegetable growth mirrors that recently reported in the US, where data last month showed spring had arrived 20 days early for much of the country’s south in 2017 due to climate change."
But economists point out that the solid figures we have seen for Chinese economic activity in 2017 (so far) can’t last. “Everything has peaked in the first quarter – nominal GDP growth, corporate earnings, PPI inflation,” said Larry Hu, head of China economics at Macquarie Securities in Hong Kong. "The strong numbers we are seeing now are not sustainable."
China reported an unexpected jump in its foreign-exchange reserves last month after months of decline and its first trade deficit in three years for the same month as imports surged (in both US dollar and yuan terms).
But economics point out that China’s data during the first two months of the year is volatile because the timing of the Lunar New Year holiday varies from year to year, affecting consumption and production schedules, imports, exports, prices and demand generally.
Economists expect consumer rice growth to pick up from March onwards and producer price growth to moderate.
